Comment :

The American central bank raised interest rates to a 22-year high yesterday. But despite this seemingly hawkish move, gold markets are looking firm given that a) this move was largely priced in and b) this meeting is being perceived as slightly less hawkish than the one in June where Chairman Powell alluded to 2 more rate hikes in 2023. This is evident from interest rate futures which post the FOMC meeting continue to see rates peaking at this level.

Unlike last time, the Fed did not give much forward guidance on the monetary policy path. It seems the softer US inflation readings for June positively weighed on their decision. Powell used the words “data dependent” when asked about the September policy. Further easing in the monthly core inflation numbers for July and August could very well make this the last rate hike in this tightening cycle. On the other hand, any negative surprises on the inflation front could mean more rate hikes.

Powell again ruled out any rate cuts in 2023 which capped the upside in gold. With policy set to be restrictive for the foreseeable future, we can expect gold prices to largely remain range bound.

Despite the “higher for longer” rhetoric, a sustainable drop in inflation along with a slowdown in US growth should lead the Fed to cut rates in the first half of 2024. A rate cut will result in a structural up move in gold prices.